European Commission set to launch new package of State aid measures in response to COVID-19

More good news on the State aid front with regard to COVID-19 – the European Commission has published a draft framework of temporary measures which allow EU member states to provide urgent financial support to affected businesses.

The framework is reminiscent of a similar temporary framework of aid measures which was introduced in response to the Financial Crisis in 2009.

The draft framework provides for State aid in the form of:

• direct grant or tax advantage - grants up to €500,000 to a company to address its urgent liquidity needs.
• subsidised guarantees on bank loans.
• subsidised interest rates.

Importantly, the Draft Framework recognises the important role of the banking sector and other financial intermediaries to deal with the economic effects of the COVID-19 outbreak. It makes clear that, if Member States decide to channel aid to the real economy via banks, this is direct aid to the banks' customers, not to the banks themselves and provides specific guidance on how to mitigate the risk of leakage of aid in this regard.

Unlike many pre-existing State aid exemptions, this framework can be used to provide financial support to undertakings in financial difficulty, provided it entered financial difficulty after 31 December 2019. This is to ensure that the Temporary Framework is not used for taxpayer support unrelated to the COVID-19 outbreak.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at March 2020. Specific advice should be sought for specific cases. For more information see our terms & conditions.